Local Government Bulletin No. 64, March 2006

The purpose of this bulletin is to focus debate on the need to increase local self-government in Canada and to help local communities achieve more autonomy. The local self-government website is: http://www.localgovernment.ca .

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In this issue:

1. The failure of the Montreal merger

2. Reported to be Running on Empty

3. Four-year term proposed for Ontario municipal governments

4. Avoiding the consequences of avoiding the election law

5. Subscribe to the Bulletin

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1. The failure of the Montreal merger

The impact of the forced merger of municipalities in the Montreal area in 2002 is now apparent. Henry Aubin, who writes a column on municipal politics for the Montreal Gazette, has recently summarized the state of the merger, concluding it is "a failure on almost all accounts".

Despite promises the merger would result in less expenditure by the big city, operating expenses have increased since 2002 by 16.7%, compared to increases in the Quebec government's own operating budget of 8.6%, and increases in inflation of 6.7%.

Despite promises that the number of city hall jobs would surely shrink by 1260 people as duplication was eliminated, the number of full-time positions, including contract staff, has increased by 330. The number of 'working' staff has been reduced by 2% but the number of managers and supervisors has increased by 9%.

Property taxes were promised to be lower but have increased 12.5%, almost twice the rate of inflation.

There were suggestions the merger would save money at the elected official level, but salaries and benefits for those elected have increased from $7.9 million to $8.7 million, not including the costs of extra political staff.

Aubin relates the common experience that services have declined very noticeably in Montreal and concludes "All in all, the merger has failed on virtually every count." He continues, "Indeed defenders of the merger at City Hall are hard pressed to name one major achievement that could not have been realized without a merger."

These kinds of results have also been evident in Toronto and in other large cities where the Ontario and Quebec governments decided to force mergers and amalgamations. The result is not surprising given the number of people who objected at the time, but it is a sad commentary that neither provincial government is willing to seriously rethink the mess that has been made at the local level.

Mr. Aubin's article can be found in the Library on our website, http://www.localgovernment.ca , under the title "A failure on almost all accounts".

2. Reported to be Running on Empty

The new report from the C.D. Howe Institute, "Running on Empty", once again deals with municipal finance. It argues that property taxes are a fitting revenue source for municipalities, although in need of some reform, and combined with an enhanced approach to user fees, should constitute a reasonable financial base for municipalities. The report notes that only in Ontario are municipalities required to bear the costs of social services, paying 21% of the cost of social assistance (welfare) - elsewhere in the country the provincial government pays the whole cost of social programs. Only in Ontario and Nova Scotia are municipalities expected to pay some of the costs of education through property taxes. The report concludes it is improper for municipalities to pay social costs and probably also education costs.

Municipal property taxes on a per capita basis have grown at the rate of 1.9% annually between 1961 and 2000, while federal taxes grew at 3.2% per year, and provincial taxes at 3.5%. Even though the increase is more modest locally, this kind of constant growth is felt more at the municipal level given collections methods. Two changes are proposed to property tax: reduce the levels of non-residential taxes (in New Brunswick the non-residential rate is pegged at 1.5 times the residential rate, whereas in Ontario it is a multiple of 3 or 4 times the residential rate); and reduce the rate on multi-unit rental buildings which are usually assessed at much higher rates and pay more taxes than single family homes, but consume fewer municipal services.

The report voices the common criticism that the $5 billion transfer from federal gasoline taxes to municipalities reduces political accountability, as does every other transfer.

The latter part of the report analyzes municipal user fee rates in various provinces showing where improvements are possible and showing that improved user rates can be accompanied by significant reductions in non-residential property tax rates in most provinces.

The report concludes that in Alberta and Ontario - and only in these two provinces - a new revenue source may be required for municipalities. In the case of Alberta it is required because of fast growth; in Ontario because of local responsibility for social services. The report suggests that the best new source of money for municipalities in these provinces would be an earned income tax, that is, a tax only on employment income by local residents. An earned income tax of one per cent would produce $6.2 billion for municipalities across the country.

The report can be found at http://www.cdhowe.org/english/publications/currentpubs.html

3. Four-year term proposed for Ontario municipal governments

In what was a surprise to many residents coping with February weather, Premier Dalton McGuinty announced that his government would bring in legislation for a four year term for municipal governments in Ontario. Provincial leaders have said the announcement was made because members of the Association of Municipalities of Ontario (AMO) had asked for the three year term to be extended and Toronto City Council had done the same. A four year term is in place for municipalities in Quebec, Newfoundland and New Brunswick.

The idea is not receiving much positive press in Ontario. In a hurried meeting in December, Toronto City Council indicated it did not have time to either inform the public or listen to their opinions before adopting a whole raft of controversial recommendations about governance including the four year proposal (see Bulletin 62). Since that time city hall has held several consultations; in each case there has been vociferous opposition to the four year term. Residents obviously feel ambushed.

As for the AMO decision, many say it was made by a small number of elected officials from small municipalities without notice to the general public. There is not much trust in rural Ontario to support the idea that elected official should be given an extra year to hold power.

It is not yet known whether the McGuinty government will permit widespread hearings on this legislative change; but it draws to public attention, once again, that local government is subject to the whim of provincial agendas. The idea of local democracy is not strongly established in Ontario.

4. Avoiding the consequences of avoiding the election law

The extraordinary imbroglio which marks the election finances of Mayor Larry Di Ianni in Hamilton continues. It has been reported previously (see Bulletins 50, 52 and 54) but to recap, the story goes like this.

In June 2004, six months after Mayor Di Ianni assumed office, citizen Joanna Chapman pointed out irregularities on the face of the election finance documents filed by the Mayor. She requested City Council to audit the Mayor's election contributions under the Ontario Municipal Elections Act but Council refused. Ms. Chapman was forced to go to court, where she found a more receptive audience.

Since that time it has been shown that many of the contributions to the Mayor contravened the Municipal Elections Act in that the amount exceeded allowable limits in the Act, or were donated by a body not permitted to make a contribution. An auditor hired by the court has concluded that illegal campaign donations to the Mayor exceed $25,000, or almost 10% of the total raised, and this money has been returned to the donors. The Mayor has downplayed any wrong-doing on his part or his campaign committee, calling it inadvertence.

Ms. Chapman points out that there were more than 60 instances of illegal contributions and that in at least one case staff must have realized that there was something wrong with a $1000.00 contribution since they allocated part of it to an individual and another part of it to a denture clinic so it would fit within the legislation. Ms. Chapman asks: "How could these changes have been made inadvertently?" She urged that Council not make the decision about the intentions of the mayor but rather to leave this matter to the courts.

On March 6, by a vote of 12 - 1, Hamilton City Council decided that charges should be laid against the Mayor under the Municipal Elections Act.

But here's the problem. There are only eight months left in Mr. Di Ianni's term and he has already served more than two years as Mayor. Maybe he will serve his whole term before there is a decision. The Municipal Elections Act apparently has no speedy way of penalizing a candidate who has taken great liberties with the statute's provisions, provisions meant to provide fairness for all candidates. Whatever the decision about Mr. Di Ianni's case, the provisions of the Act do not seem to stand in the way of someone who wants to treat the act with impunity and still serve as mayor.

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